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Contractor overhead calculator: your rate, per hour and per bid
Overhead is every dollar the company spends that no single job pays for. At the sample figures — $220,000 on $1.2 million of revenue — that is 18.3% of revenue, a 24.4% markup on direct cost just to break even, and $35.26 on every billable field hour.
Annual overhead
Costs no single job pays for. Replace the sample figures with last year’s books, or this year’s budget.
| Expense | Per year | Remove |
|---|---|---|
| Total | $220,000 |
The business around it
Total overhead
$220,000
$18,333 a month
Overhead % of revenue
18.3%
What every bid has to recover
Overhead % of direct cost
24.4%
Markup that only breaks even
Per billable field hour
$35.26
6,240 billable hours a year
Markup for 10% net
39.5%
On direct cost, overhead included
Net these numbers leave
6.7%
Below target
The markup above is on cost, not a margin on price — test a bid both ways in the markup vs margin calculator. Every field takes arithmetic, and nothing is sent anywhere.
Job cost or overhead?
The dividing line is whether the cost can be traced to one job. Everything that can belongs in the estimate as a direct cost; everything else is overhead the markup has to recover.
| Direct job cost | Overhead |
|---|---|
| Field labor wages | Office and admin wages |
| Labor burden — payroll taxes, workers' comp, benefits | Owner's salary for running the business |
| Materials and freight to the job | Office / shop rent and utilities |
| Subcontractors | General liability and umbrella not in burden |
| Equipment rented or charged to the job | Vehicles, tools and software not billed to jobs |
| Permits, dumpsters, job-specific bonds | Accounting, legal, marketing, licenses |
Labor burden is a job cost, not overhead: it rises and falls with field hours. Work it out per hour with the labor burden calculator and put it in the estimate, so the markup is not quietly carrying it.
Three ways to express overhead
| Measure | Formula | Use it for |
|---|---|---|
| % of revenue | Overhead ÷ revenue | Markup math, benchmarking year to year |
| % of direct cost | Overhead ÷ direct cost | An overhead line applied on the estimate |
| Per billable hour | Overhead ÷ (crew × hours × utilization) | T&M, service and hourly rates |
Billable hours are not paid hours. A field employee paid 2,080 hours a year who spends a quarter of them driving, in the shop or rained out bills about 1,560, and overhead has to be spread over the smaller number.
Worked example, using the sample figures
Revenue $1,200,000; direct cost $900,000; overhead $220,000. The company is marking cost up 33.3% on average. Overhead takes 18.3% of every sales dollar, leaving a 6.7% net — below a 10% target. Hitting 10% net requires a 39.5% markup on direct cost: (18.3 + 10) ÷ (100 − 18.3 − 10). On a $50,000-cost job, that is the difference between a $66,700 bid and a $69,800 bid.
Overhead percent is not the markup
18% overhead does not mean an 18% markup covers it. Overhead is measured against the price and markup against the cost, so the markup has to be higher — the same trap as markup versus margin. Test any bid both ways in the markup calculator, and see how to estimate a construction job for where overhead sits in the full build-up. Once the numbers are right, job costing software tells you whether jobs actually hit them.
Frequently asked questions
What counts as overhead for a contractor?
Anything the company spends that no single job pays for: office and shop rent, office staff, the owner's salary when it is not charged to jobs, insurance that is not part of labor burden, unbilled vehicles, software, accounting and marketing. Field labor, burden, materials, subcontractors and equipment charged to a job are direct costs, not overhead.
How do you calculate an overhead rate?
Divide annual overhead by annual revenue for a percent of sales, by annual direct cost for the markup that just recovers it, or by billable field hours for a per-hour rate. $220,000 of overhead on $1.2 million of revenue is 18.3% of sales, 24.4% of $900,000 direct cost, and $35.26 per hour across 6,240 billable hours.
What is a good overhead percentage for a contractor?
It varies too much by trade and company size for one number to be useful — rules of thumb put small contractors anywhere from roughly 10% to 25% of revenue. What matters is that your markup covers your own figure plus profit; a company with 20% overhead cannot survive on a 20% markup.
Should the owner's salary be in overhead?
The part the owner earns running the business should be — estimating, selling, managing. Hours the owner spends working on the tools can be charged to jobs as field labor instead. Leaving the owner's pay out entirely makes overhead look low and profit look high until the owner tries to pay themselves.
What does '10 and 10' overhead and profit mean?
10% overhead plus 10% profit, common in insurance restoration work. Applied one after the other it is a 21% markup on cost (1.10 × 1.10), which is a 17.4% margin on the price — not 20%.
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